6:00 AM EDT, Tuesday, February 14, 2017
Natural gas demand will continue to march higher today as seasonally cool temperatures across the southern Plains slide east, even as it remains well below-average. Highs today across the south will cool 10-15 degrees day-over-day with Dallas dropping from the upper 60s to the lower 40s and Little Rock, Ar falling from the mid-50s to the upper 40s. While east Texas through Arkansas and Louisiana will see a chilly rain, areas from Amarillo, Tx to eastern New Mexico can expect 2-4 inches of wet snow. As mentioned yesterday, these areas were in the upper 80s and lower 90s about 72 hours ago. Across the northern Plains, temperatures will drop about 10 degrees day-over-day from South Dakota to Minnesota with readings falling from the 40s into the 30s in most areas, still 10F-15F warmer than normal. Elsewhere across the country, temperatures will be at or above-average across most areas and will generally be within 5 degrees of yesterday’s highs. Overall, the forecast mean population-weighted nationwide temperature today will cool by just under 1F day-over-day to 45.6F, still more than 3F warmer than average. Based on this outlook, I am projecting a -17 BCF daily natural gas storage withdrawal, 3 BCF larger than yesterday but nearly 6 BCF smaller than the 5-year average. Look for temperatures to stabilize tomorrow with natural gas demand to be more or less unchanged.
Amidst forecasts that February 2017 will be among the warmest Februarys on record, natural gas extended Friday’s 3.4% losses by falling a further 9 cents or 3% on Monday to settle at $2.94/MMBU. It was the first time that the commodity closed under $3.00/MMBTU since November 23, 2016. Nonetheless, natural gas prices are still up 49% year-over-year as natural gas inventories are more than 280 BCF lower compared to this time last year. Crude oil opened the weak lower as well, falling 93 cents or 1.7% to $52.93/barrel as investors continue to weigh rising US production and OPEC production cut pledges which, so far, the organization seems to have adhered to.
One of the primary drivers of the natural gas’ dip below $3.00/MMBTU is a marked warming trend for the week of February 18-24. By early next week, temperatures across the Heartland could rise as high as 25F-30F warmer than average with 60F readings as far north as Minnesota and Wisconsin. As a result, forecast population-weighted nationwide temperatures would rise to more than 10F warmer than average for 3 or more straight days, reaching as warm as 54F. Based on this outlook, daily withdrawals could approach 0 BCF sometime in the Sunday-Tuesday timeframe, 15-20 BCF smaller than average. For the week of February 18-24, I am currently projecting a remarkably small -51 BCF storage withdrawal, a mammoth 81 BCF smaller than the 5-year average. Last Friday, this projection was over -100 BCF, highlighting just how rapidly the forecast for this week has warmed. This is shown in the Figure to the right. Not only would such a withdrawal be the smallest for the week in the last 5 years–the projected third consecutive week for which this is the case–it would also be the third smallest in the full 23-year history of EIA inventory reports. Perhaps this will prompt the final capitalulation that long-term bulls have been waiting fore. See more on this exceptionally bearish projection HERE. Just imagine how bearish these reports would be if it wasn’t for a tight supply/demand balance and LNG exports…
Speaking of which, the LNG tanker Rioja Knutsen arrived in Sabine Pass late yesterday evening. It was the first to arrive at the LNG liquefaction plant this week, after 4 arrived last week. Expect it to be joined by the Ribera Duero Knutsen and Stena Crystal Sky this week, at minimum, with the Gaslog Shangui and Gallina also in the western Atlantic moving in the general direction of Sabine Pass, as shown in the Figure to the right. Over the past week, daily feedgas demand has hovered right around 2.1 BCF/day–and today is now exception–equating to around 15 BCF/week. Such deliveries would mandate an average of 4-5 LNG tankers each with a capacity of around 3 BCF of LNG, which also accounts for feedgas that is not converted to LNG but is instead burned to drive the liquefaction process. See more on LNG exports HERE.
With the near-term outlook for natural gas demand as weak as it is, it remains difficult to recommend getting aggressively long at this time for all but the most risk-tolerant. It is better to let the pieces settle out before jumping headfirst at a falling knife hoping for a deal. In such an environment, the fundamentals–Fair Price, market tightness, etc–go by the wayside and the commodity trades on emotion, model run to model run.
February 14, 2017
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